NBC buys San Francisco TV station

Young Exec VP: NBC's chance to buy KRON is past

By

DavidB. Wilkerson

SAN FRANCISCO (CBS.MW) -- NBC has agreed to buy KNTV, Granite Broadcasting's San Francisco-area television station, for $230 million, the companies said Monday, in a deal that will ultimately give NBC a two-station cluster in the market.

KNTV is to become the market's new NBC affiliate Jan. 1.

When NBC's acquisition of Spanish-language network Telemundo closes next year, the General Electric unit will own what is known as a duopoly in the Bay Area, as it will control both KNTV and Telemundo's KSTS-TV.

The deal came after speculation that NBC would buy KRON-TV, the current NBC affiliate in San Francisco, from Young Broadcasting. When Young bought KRON from Chronicle Broadcasting last year, NBC was unable to come to terms with Young on an extension of KRON's network affiliation contract. That left the door open for Granite, which ultimately agreed to pay NBC $362 million over 10 years to showcase NBC programming on KNTV.

NBC-KRON is 'closed door'

Speculation has continued that NBC may still be interested in buying KRON, but "That is a closed door," said Young Executive Vice President of Operations Deborah McDermott, in an interview with CBS.MarketWatch.com Monday afternoon. A source close to the talks said negotiations between NBC and Young broke down for the last time three weeks ago.

Separately Monday, Young announced that it has hired Credit Suisse First Boston to help it explore various strategic alternatives; those alternatives include a possible sale of the company, McDermott confirmed.

"There has been a lot of interest in both of our California properties," McDermott said, referring to both KRON and Los Angeles independent station KCAL. KCAL's formidable news and sports slate has made it very successful in L.A., the nation's No. 2 market.

Young may be either a buyer or seller of stations, said McDermott, given the continued deregulation of television ownership.

"Don't forget," said Bishop Cheen, analyst at First Union Capital Markets, "in any kind of deregulatory environment -- I don't care if you're flying Peacock colors or independent colors -- a major market, viable asset such as KRON is going to fetch a handsome price."

Since 1999, the Federal Communications Commission has been striking down long-standing limitations; first it decided that an owner could have two television stations in the nation's largest markets, provided there are at least eight separate media voices in that market.

This year, it ruled that ownership of two broadcast networks was possible under certain conditions. Next on the horizon, observers say, is the lifting of rules that prohibited companies from owning both a newspaper and a TV station in the same market. Once this limit is erased, a potential feeding frenzy of station swaps and purchases could be unleashed.

"And plus," McDermott went on, "we think the advertising market and the economy may pick up in the third quarter of next year." The entire media world has been in the throes of a 14-month long advertising slump, exacerbated by the events of Sept. 11.

Monday's deal releases Granite from the obligation to pay NBC for programming on KNTV, and gives the company -- one of only two publicly traded African-American-owned media firms -- much-needed cash to pay down debt.

It remains to be seen if Granite's improved balance sheet will offset the loss of two stations that played significant roles in its strategy. In October, it hired Goldman Sachs & Co. to sell WDWB-TV, its Detroit WB affiliate. No buyer has yet been named. With Monday's deal, Granite is giving up its own San Francisco duopoly. The company also owns KBWB, another WB affiliate.

Granite's remaining stations are in such markets as Buffalo, Syracuse, N.Y., Fresno, Calif., Duluth, Minn. and other medium-sized television markets.

"It would be difficult for Granite to get the senior debt liquidity that it had in the past," said Cheen. "So it's probably a better seller than buyer of stations ... In terms of getting the most it can of its value, this company hasn't had all of its at-bats yet."

Some observers have wondered if KNTV, located in San Jose some 50 miles south of San Francisco, would be able to upgrade both its signal and talent to fully compete in the San Francisco market, the nation's fifth largest. Granite had forged a five-year cable deal with AT&T Broadband that put KNTV on Channel 3, only one channel away from KRON, to limit confusion on the part of viewers. The company also spent money to upgrade the signal.

But doubters remained. Now, NBC's purchase of the asset serves to end most of those questions.

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